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Argentina, creditors face off in NY over debts

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Modified: February 27, 2013 at 6:04 pm •
Published: February 27, 2013

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NEW YORK (AP) — The Republic of Argentina squared off with a group of U.S. hedge funds Wednesday in a court case that has the potential to unravel deals the South American country made to get out from under a $100 billion pile of bad national debt.

FILE - In this July 25, 2012 photo, Argentina's President Cristina Fernandez unveils an archetype of the new 100 Argentine pesos bill bearing the profile of former late first lady Maria Eva Duarte de Peron, better known as "Evita," at the government palace in Buenos Aires, Argentina. Judgment day is approaching in an epic battle between Argentina and New York billionaire Paul Singer, who has sent lawyers around the globe trying to force the South American country to pay its defaulted debts. Three U.S. appellate judges will hear oral arguments in New York on Wednesday, Feb. 27, 2013, in the case, NML Capital Ltd. v. Argentina. The case has shaken bond markets, worried bankers, lawyers and diplomats, captivated financial analysts and generated enough “friend of the court” briefs to kill a small forest. (AP Photo/Alberto Raggio, DyN, File)

The high-stakes legal fight, which revolves around Argentina's refusal to pay anything to a small group of holdout creditors owed about $1.3 billion, appeared to be reaching a brink Wednesday, as lawyers representing banks, bondholders, and the republic stood before the 2nd U.S. Circuit Court of Appeals.

The intractable nature of the dispute was made clear from the start, when Argentina's American lawyer, Jonathan Blackman, sheepishly issued what amounted to a challenge to the court's authority: He said that if the judges issued a ruling that didn't go Argentina's way, the country would simply refuse to obey.

"We are representing a government, and governments will not be told to do things that fundamentally violate their principles," Blackman said. He said that in this case, Argentina was no more likely to comply with an order from a U.S. court than the U.S. was likely to abide by an order issued by a court in Iran.

The pronouncement visibly irritated one of the judges on the panel, Reena Raggi, who questioned the lawyer sharply about why the court should excuse the country from a debt it is legally obligated to pay.

The dispute stems from Argentina's record $100 billion default on its national debt in 2001. Most of the country's creditors ultimately agreed to new bonds paying far less than what they were originally owed. A few holdouts resisted, including companies controlled by New York billionaire hedge fund investor Paul Singer.

Those holdouts have won a $1.3 billion court judgment against Argentina in New York, but they have been labeled "vultures" by Argentina's president, Cristina Fernandez, who has vowed to pay them nothing unless they accept the same deal as the other bondholders.

Singer's hedge funds, meanwhile, have gone after Argentina's assets around the globe, even temporarily persuading the nation of Ghana to seize a ship in the Argentinian navy.

The two sides have been in court over the issue since 2004, but on Wednesday their argument before the 2nd U.S. Circuit Court of Appeals was being watched closely by bankers because of its potential impact on unrelated debt disputes.

In a creative effort to force Argentina to pay up, a federal judge last year ordered the U.S. bank processing the country's debt payments to begin diverting a portion of that money away from the bondholders who previously settled and into the hands of Singer and the other holdouts.